An ERS Pension Is Different From a 401(k)
The Employees Retirement System of Texas (ERS) provides retirement benefits for many Texas state employees. Like the Texas Teacher Retirement System (TRS), ERS is a defined benefit pension plan, not a defined contribution retirement account such as a 401(k), 403(b), IRA, or Thrift Savings Plan (TSP).

This distinction is important because the method of dividing an ERS pension is fundamentally different from dividing an investment account.

A 401(k) has an identifiable account balance that can be divided by awarding a percentage or dollar amount to each spouse. An ERS pension, however, generally provides the employee with the right to receive a monthly retirement annuity calculated under a statutory formula that considers factors such as years of service, salary history, and retirement eligibility.

Because ERS is a defined benefit plan, the retirement benefit is generally far more valuable than the employee contribution balance reflected on an annual statement.

The Employee Contribution Balance Does Not Reflect the Value of the Pension
Many state employees believe the amount shown on their ERS statement represents the value of their retirement. In most cases, it does not.

The employee contribution balance reflects only one component of the retirement system. The actual retirement benefit is the lifetime monthly annuity that may be paid after retirement, and that benefit is determined by statute rather than by the amount of employee contributions alone.

As a result, the contribution balance often significantly understates the economic value of the pension.

For this reason, attorneys and courts generally do not divide an ERS pension based solely on the employee contribution balance. Instead, the court divides the community property interest in the future retirement benefit.

Only the Community Property Interest Is Subject to Division
Texas is a community property state. Retirement benefits earned during the marriage are generally presumed to be community property, while benefits earned before marriage are generally separate property. See Tex. Fam. Code §§ 3.002, 3.003, 3.007, and 7.001.

Section 3.007 of the Texas Family Code specifically addresses the characterization of retirement benefits as community or separate property.

If an employee began participating in ERS before the marriage, the retirement benefits attributable to service before marriage generally remain the employee’s separate property. Only the portion earned during the marriage is generally subject to division by the divorce court.

Determining the community interest often requires reviewing employment records, service credit, and the dates of marriage and employment. A current ERS statement alone usually does not answer those questions.

The Former Spouse May Receive Monthly Retirement Benefits After the Divorce
A divorce does not create an ongoing community estate. Once the divorce decree is signed, the community estate ceases to exist.

If the court awards a portion of the ERS pension to the non-employee spouse, the former spouse receives a separate property interest in a portion of the community interest that was earned during the marriage. When the employee later retires and begins receiving monthly ERS retirement benefits, the former spouse may receive the percentage or amount awarded by the divorce decree and domestic relations order.

The former spouse receives those retirement payments because the divorce court awarded an ownership interest in the community portion of the pension—not because the community estate continues after the divorce.

A Pension Valuation May Require an Expert
In some divorces, the parties prefer to determine the present value of the community interest in the pension rather than divide future monthly retirement payments.

Valuing a defined benefit pension requires specialized actuarial and financial analysis, including assumptions regarding retirement age, life expectancy, benefit elections, discount rates, and projected future payments. For that reason, pension valuations are frequently performed by forensic accountants, actuaries, or other qualified valuation experts.

Although retaining an expert increases litigation costs, a valuation may allow one spouse to retain the pension while the other receives different marital assets of comparable value.

ERS Requires Its Own Domestic Relations Order
An ERS pension is not divided using the same procedures that apply to a private employer’s 401(k).

The Employees Retirement System of Texas requires a domestic relations order that complies with the Texas Government Code and ERS administrative requirements before retirement benefits may be paid to a former spouse. ERS publishes model forms and detailed guidance regarding the preparation of these orders.

A Final Decree of Divorce alone generally is not sufficient to divide an ERS pension. The required domestic relations order must be approved and accepted by ERS before payments can be made to the former spouse.

Tell Your Attorney If You Began Working Before Marriage
If you were employed by the State of Texas before your marriage, it is important to tell your attorney immediately.

Service credit earned before marriage may constitute separate property under Section 3.007 of the Texas Family Code. Early identification of a separate property claim allows your attorney to obtain employment records, retirement information, and other documentation necessary to properly characterize the pension before settlement negotiations or trial.

Waiting until the end of the divorce to investigate these issues may complicate the property division and increase the cost of the case.

Fergus & Tomanka Can Help Protect Your Retirement Benefits
ERS pensions are often among the most valuable assets accumulated during a marriage, yet they are also among the most misunderstood. Properly identifying the community property interest, preserving separate property claims, evaluating whether an actuarial valuation is appropriate, and preparing a legally sufficient domestic relations order all require careful planning and experience.

At Fergus & Tomanka, we regularly represent clients in divorces involving ERS pensions and other public retirement systems. We work with qualified financial experts when necessary, prepare the required retirement orders, and help ensure that retirement benefits are divided accurately and in accordance with Texas law.